Capital-labour substitution and allocative efficiency in resource-use: an application of the CES production function to the Nigerian petroleum industry 1992-2000

Rahji, M.A.Y.; Omonona, B.T.

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Title:	Capital-labour substitution and allocative efficiency in resource-use: an application of the CES production function to the Nigerian petroleum industry 1992-2000
Authors:	Rahji, M.A.Y. Omonona, B.T.
Year:	2001
Periodical:	The Nigerian Journal of Economic and Social Studies
Volume:	43
Issue:	2
Pages:	255-264
Language:	English
Geographic term:	Nigeria
Subjects:	capital labour force efficiency business financing petroleum
Abstract:	This study estimates a constant elasticity of substitution (CES) production function for the Nigerian petroleum industry during the period 1992-2000, covering the operations of five major oil firms, viz. Shell Development Petroleum Corporation, Gulf Oil Company (Nigeria) Limited, Mobil Oil (Nigeria) Limited, Agip (Nigeria) Limited and ELF (Nigeria) Limited. Data were obtained from the Federal Office of Statistics, the Central Bank of Nigeria and the Nigerian National Petroleum Corporation. Multiple regression analysis using the ordinary least squares method was employed for the data analysis. The study reveals that capital and labour are significant factors that influence the output of petroleum. The results, based on the value of the substitution parameter obtained, indicate that substitution is possible between the two inputs. The hypothesis tested tends to suggest that capital investment increases at a faster rate than the number of workers. The test also indicates that there is allocative inefficiency in the use of capital and labour in the industry as the null hypothesis is rejected. Recommendations emanating from the results include substitution of capital for labour and the improvement of labour productivity through training and retraining of the workforce as investments on capital increase so as to achieve increased output. Bibliogr., sum. [Journal abstract]

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